Emerging Markets? More Like Diverging Markets!


A sharp dichotomy has appeared in emerging markets as Asia struggles and oil rallies.

The iShares MSCI India ETF (INDA) is down 8 percent in the last two weeks and the iShares China Large-Cap ETF (FXI) has declined 2 percent. Meanwhile, the iShares Brazil MSCI ETF (EWZ) ripped 13 percent and the Market Vectors Russia (RSX) has gained 3 percent. See RadarScreen® below.

Several forces are pulling the once-united emerging markets in different directions. Indian stocks have followed their currency lower as currency markets worry about rising inflation and dependence on foreign oil. Remember that selloff in the Turkish lira over the summer? The rupee is experiencing something similar right now.

The story in China is better known as President Trump hammers its key factory sector with tariffs. That’s increasingly stirred alarm, with The Wall Street Journal, J.P. Morgan, CNBC and Premier Li Keqiang all making negative comments on the Asian giant in the last month. (Market Insights saw this coming in June and July.)

RadarScreen® comparing countries over 2 weeks and year-to-date. The right column shows position in their respective 10-day ranges. Data as of Oct. 3 close.

Those are the bears… now the bulls. Did you know Brazilians vote for president this Sunday? Recent polls show conservative Jair Bolsonaro gaining against leftist Fernando Haddad. That’s lifted spirits in a country where years of socialist rule have weighed on business sentiment. Most experts think neither Bolsonaro nor Haddad will win a majority, resulting in a winner-take-all second round on October 28.

The other big catalyst is oil. Brazil is roughly the world’s tenth-biggest producer, while Russia is in the top three (vying with the U.S. and Saudi Arabia). WTI Crude Oil Futures (@CL) closed at their highest level yesterday since July 2015. The commodity’s been rising as the deadline for sanctions against Iran draw near.

Clients may notice that the split between Brazil, Russia, India and China neatly divides the old “BRIC” grouping in half. Last decade they often moved in tandem on a simple enthusiasm for global growth. But a lot of time has passed and now the market is seeing two very different trends take hold.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them apprised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.